EXHIBIT 99.1

 

 

NETSOL Technologies Reports Fiscal Third Quarter 2019 Financial Results

 

Sixth Consecutive Quarter of Profitability and Continued Topline Growth Driven by Core Business Strength, Successful Milestone Implementation In China for Previously Announced 12-Country, $110 Million Contract

 

CALABASAS, Calif., May 14, 2019 – NETSOL Technologies, Inc. (NASDAQ: NTWK), a global business services and enterprise application solutions provider, reported results for the fiscal third quarter ended March 31, 2019.

 

Third Quarter and Recent Operational Highlights

 

  ● Updates related to previously announced 12-country, $110 million contract with German auto manufacturing giant.

 

  o Successfully implemented the full suite of NFS Ascent™ modules in China.
     
  o Successfully implemented NFS Ascent Wholesale Finance System in Japan.
     
  o Made continued progress with respect to additional NFS Ascent implementations in Singapore, Malaysia, Hong Kong, India and Thailand.

 

  ● Made significant strides in the ongoing implementation process for the deployment of NFS Ascent Retail and Wholesale platforms with European tier-one global auto captive in China related to the $30 million contract signed in September 2018.
     
  ● Continued implementation of NFS Ascent Retail platform at captive auto leasing company of a major US based auto manufacturer in China.
     
  ● Officially launched OTOZ Mobility Innovation Lab, which has been designed to enhance reach of NETSOL Ascent platform into car-sharing opportunities with new and existing auto captive finance customers.
     
  ● Announced strategic investment and partnership with Drivemate, the top car-sharing, peer-to-peer car rental service in Thailand, to implement new technology in exchange for future minority interest in the company, providing for a low-risk testing environment for OTOZ with a built-in customer.
     
  ● Continued to build out capabilities in intelligent technologies such as artificial intelligence, machine learning, blockchain, IoT and cloud native architectures to help future proof core business and innovate around new opportunities, specifically car sharing and peer-to-peer sharing as well as subscription and data driven business models.

 

Fiscal Third Quarter 2019 Financial Results

 

Total net revenues for the third quarter of fiscal 2019 were $17.1 million, compared with $17.0 million in the prior year period. The increase in total net revenues was primarily due to an increase in total services revenues of $256,000, which was offset by a decrease in total license fees of $113,000 and total maintenances fees of $61,000.

 

   
 

 

  ● Total license fees were $2.5 million, compared with $2.6 million in the prior year period.
     
  ● Total maintenance fees were $3.7 million, compared with $3.8 million in the prior year period.
     
  ● Total services revenues were $10.9 million, compared with $10.6 million in the prior year period.

 

Gross profit for the third quarter of fiscal 2019 was $8.6 million (or 50.0% of total net revenues), compared to $9.2 million (or 53.9% of total net revenues) in the third quarter of fiscal 2018. The decrease in gross profit as a percentage of net revenues was due to an increase in the cost of revenues of 719,000. The increase in cost of revenue was predominantly driven by increases in travel and other expenses associated with increased implementation needs for the significant new wins recorded in previous quarters, which are expected to be invoiced to clients and subsequently reimbursed. The increase in cost of revenues was offset by decreases in salaries and consultants’ costs, decreases in depreciation and amortization costs as well as an increase in total net revenues of $83,000.

 

Operating expenses for the third quarter of fiscal 2019 increased to $6.5 million (or 37.7% of total net revenues) from $6.4 million (or 37.8% of total net revenues) for the third quarter of fiscal 2018. The increase in operating expenses was primarily due to increases in research and development expenses and depreciation which were offset by decreases in selling and marketing expenses, salaries and wages, professional services, and general and administrative expenses.

 

Net income attributable to NETSOL for the third quarter of fiscal 2019 totaled $1.3 million or $0.11 per diluted share, a decrease from net income of $2.9 million or $0.26 per diluted share in the third quarter of fiscal 2018. The decrease in net income was primarily due to a decrease in foreign currency exchange transactions to $47,000 in the third quarter of fiscal 2019 compared to $2.6 million for the third quarter of fiscal 2018.

 

Non-GAAP adjusted EBITDA for the third quarter of fiscal 2019 totaled $2.2 million or $0.19 per diluted share, compared to $4.3 million or $0.39 per diluted share in the third quarter of fiscal 2018 (see note regarding “Use of Non-GAAP Financial Measures,” below for further discussion of this non-GAAP measure).

 

At March 31, 2019, cash and cash equivalents were $17.0 million, an increase from $12.7 million at the end of the prior year quarter.

 

Management Commentary

 

“In the fiscal third quarter, we continued to execute in all areas of our core business, enabling us to achieve certain major operational milestones that positively impacted our financial and operational performance,” said company Co-Founder, Chairman and Chief Executive Officer Najeeb Ghauri. “More specifically, our successful ‘Go Live’ in China this past March represented the greatest single deployment of our Ascent platform in the largest leasing market in the Asia Pacific region. We’ve now generated profitable results from operations for six consecutive quarters and have continued to sequentially improve our topline throughout the course of the fiscal 2019. In the near term, we remain on track to achieve our previously stated goal of double-digit revenue growth for the year. Going forward, we’re continuing to position ourselves effectively for the long term through new initiatives like our recently launched OTOZ Mobility Innovation Lab, which will allow us to expand reach of our existing platform into new growth opportunities.”

 

   
 

 

Sales Outlook

 

“We are continuing to generate a healthy mix of business opportunities, through both implementation execution and up-selling to our current client base as well as by expanding on our already-robust international pipeline,” added President and Head of Sales Naeem Ghauri. “NFS Ascent continues to be the main growth driver for our core operations, and we’re seeing great interest in upgrades from existing clients as well as RFPs from potential new clients.

 

“With the recent launch of our OTOZ Innovation Lab, there has been an incredibly strong response from the market, particularly around the platform’s capabilities in blockchain and artificial intelligence. As mobility becomes redefined, our industry is entering a period of significant evolution and also disruption. New, emerging models for car and ride sharing, where these technologies of the future should play a central role, will help define the leading solutions going forward. With Ascent and OTOZ together, NETSOL has established two major platforms that have the ability to address and leverage these new models for many years to come.”

 

Conference Call

 

NETSOL Technologies management will hold a conference call today (May 14, 2019) at 11:00 a.m. Eastern time (8:00 a.m. Pacific time) to discuss these financial results. A question and answer session will follow management’s presentation.

 

U.S. dial-in: 1-877-407-0789

International dial-in: 1-201-689-8562

 

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 1-949-574-3860.

 

The conference call will be broadcasted live and available for replay here and via the Investor Relations section of NETSOL’s website.

 

A replay of the conference call will be available after 2:00 p.m. Eastern time on the same day through May 28, 2019.

 

Toll-free replay number: 1-844-512-2921

International replay number: 1-412-317-6671

Replay ID: 13689882

 

About NETSOL Technologies

 

NETSOL Technologies, Inc. (NASDAQ: NTWK) is a worldwide provider of IT and enterprise software solutions primarily serving the global Leasing and Finance industry. The company’s suite of applications is backed by 40 years of domain expertise and supported by a committed team of approximately 1,350 professionals placed in eight strategically located support and delivery centers throughout the world. NFS, LeasePak, LeaseSoft or NFS Ascent – help companies transform their Finance and Leasing operations, providing a fully automated asset-based finance solution covering the complete leasing and finance lifecycle.

 

   
 

 

Forward-Looking Statements

 

Certain statements in this press release are forward-looking in nature, including, but not limited to, expected net revenue and the demand for and sales lifecycle of NFS Ascent, and accordingly, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “expects,” “anticipates,” variations of such words, and similar expressions, identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, but their absence does not mean that the statement is not forward-looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Factors that could affect the Company’s actual results include the progress and costs of the development of products and services and the timing of the market acceptance. The subject Companies expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in the company’s expectations with regard thereto or any change in events, conditions or circumstances upon which any statement is based.

 

Use of Non-GAAP Financial Measures

 

The reconciliation of Adjusted EBITDA to net income, the most comparable financial measure based upon GAAP, as well as a further explanation of adjusted EBITDA, is included in the financial tables in Schedule 4 of this press release.

 

Investor Relations Contact:

 

Matt Glover and Tom Colton

Gateway Investor Relations

949-574-3860

investors@netsoltech.com

 

   
 

 

NETSOL Technologies, Inc. and Subsidiaries

Schedule 1: Consolidated Balance Sheets

 

   As of
March 31, 2019		   As of
June 30, 2018		 
ASSETS          
Current assets:          
Cash and cash equivalents  $17,014,590   $22,088,853 
Accounts receivable, net of allowance of $373,329 and $610,061   15,971,676    12,775,461 
Accounts receivable, net - related party   3,012,133    3,374,272 
Revenues in excess of billings   13,381,205    14,285,778 
Revenues in excess of billings - related party   61,822    - 
Convertible note receivable - related party   3,250,000    2,123,500 
Other current assets   3,593,057    2,703,032 
Total current assets   56,284,483    57,350,896 
Revenues in excess of billings, net - long term   -    1,206,669 
Property and equipment, net   14,374,262    16,165,491 
Long term investment   2,501,299    3,217,162 
Other assets   23,994    70,299 
Intangible assets, net   9,042,726    12,247,196 
Goodwill   9,516,568    9,516,568 
Total assets  $91,743,332   $99,774,281 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $6,881,435   $7,873,809 
Current portion of loans and obligations under capitalized leases   8,111,332    8,595,919 
Unearned revenues   6,241,741    5,949,581 
Common stock to be issued   88,324    88,324 
Total current liabilities   21,322,832    22,507,633 
Loans and obligations under capitalized leases; less current maturities   716,563    330,596 
Total liabilities   22,039,395    22,838,229 
Commitments and contingencies          
Stockholders’ equity:          
Preferred stock, $.01 par value; 500,000 shares authorized;   -    - 
Common stock, $.01 par value; 14,500,000 shares authorized; 11,879,056 shares issued and 11,673,203 outstanding as of March 31, 2019 and 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018   118,791    117,085 
Additional paid-in-capital   127,551,606    126,479,147 
Treasury stock (At cost, 205,853 shares and 205,853 shares as of March 31, 2019 and June 30, 2018, respectively)   (1,205,024)   (1,205,024)
Accumulated deficit   (38,704,519)   (37,994,502)
Stock subscription receivable   (221,000)   (221,000)
Other comprehensive loss   (28,474,832)   (24,386,071)
Total NetSol stockholders’ equity   59,065,022    62,789,635 
Non-controlling interest   10,638,915    14,146,417 
Total stockholders’ equity   69,703,937    76,936,052 
Total liabilities and stockholders’ equity  $91,743,332   $99,774,281 

 

   
 

 

NETSOL Technologies, Inc. and Subsidiaries

Schedule 2: Consolidated Statement of Operations

 

   For the Three Months   For the Nine Months 
   Ended March 31,   Ended March 31, 
   2019   2018   2019   2018 
Net Revenues:                    
License fees  $2,536,320   $2,648,870   $13,310,002   $3,210,868 
Maintenance fees   3,562,412    3,659,998    10,735,432    10,702,171 
Services   10,519,219    9,345,210    25,175,187    25,450,138 
License fees - related party   -    -    -    261,513 
Maintenance fees - related party   142,344    105,325    370,723    309,539 
Services - related party   366,760    1,284,417    934,883    4,374,802 
Total net revenues   17,127,055    17,043,820    50,526,227    44,309,031 
                     
Cost of revenues:                    
Salaries and consultants   4,833,611    5,418,067    14,351,227    16,244,319 
Travel   1,793,964    425,060    4,652,143    1,226,073 
Depreciation and amortization   874,654    1,127,077    2,692,306    3,468,293 
Other   1,067,506    880,897    3,176,602    2,677,465 
Total cost of revenues   8,569,735    7,851,101    24,872,278    23,616,150 
                     
Gross profit   8,557,320    9,192,719    25,653,949    20,692,881 
                     
Operating expenses:                    
Selling and marketing   1,864,990    1,962,402    5,614,619    5,605,838 
Depreciation and amortization   252,442    231,308    658,453    699,966 
General and administrative   3,833,209    4,048,271    12,241,988    11,862,535 
Research and development cost   513,770    197,643    1,256,577    572,619 
Total operating expenses   6,464,411    6,439,624    19,771,637    18,740,958 
                     
Income (loss) from operations   2,092,909    2,753,095    5,882,312    1,951,923 
                     
Other income and (expenses)                    
Gain (loss) on sale of assets   16,380    40,537    65,170    24,468 
Interest expense   (70,447)   (102,522)   (233,685)   (330,268)
Interest income   201,084    142,356    680,469    394,837 
Gain on foreign currency exchange transactions   47,218    2,550,394    2,594,885    5,304,723 
Share of net loss from equity investment   (245,389)   (263,678)   (843,373)   (534,576)
Other income   3,116    314    12,998    15,924 
Total other income (expenses)   (48,038)   2,367,401    2,276,464    4,875,108 
                     
Net income before income taxes   2,044,871    5,120,496    8,158,776    6,827,031 
Income tax provision   (275,476)   (261,182)   (777,262)   (486,980)
Net income   1,769,395    4,859,314    7,381,514    6,340,051 
Non-controlling interest   (501,835)   (1,994,869)   (2,295,736)   (3,210,683)
Net income attributable to NetSol  $1,267,560   $2,864,445  $5,085,778   $3,129,368 
                     
Net income (loss) per share:                    
Net income (loss) per common share                    
Basic  $0.11   $0.26   $0.44   $0.28 
Diluted  $0.11   $0.25   $0.44   $0.28 
                     
Weighted average number of shares outstanding                    
Basic   11,656,098    11,190,048   11,580,066    11,118,529 
Diluted   11,691,342    11,268,842   11,615,310    11,152,365 

 

   
 

 

NETSOL Technologies, Inc. and Subsidiaries

Schedule 3: Consolidated Statement of Cash Flows

 

   For the Nine Months 
   Ended March 31, 
   2019   2018 
Cash flows from operating activities:          
Net income  $7,381,514   $6,340,051 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   3,350,759    4,168,259 
Share of net loss from investment under equity method   843,373    534,576 
Gain on sale of assets   (65,170)   (24,468)
Stock based compensation   980,682    1,281,763 
Fair market value of stock options   43,612    - 
Changes in operating assets and liabilities:           
Accounts receivable   (4,249,540)   (17,848,921)
Accounts receivable - related party   (461,435)   (2,634,063)
Revenues in excess of billing   (6,862,451)   5,904,161 
Revenues in excess of billing - related party   (97,359)   (85,743)
Other current assets   (1,189,909)   (796,126)
Accounts payable and accrued expenses   (540,615)   1,139,509 
Unearned revenue   611,157    4,273,007 
Net cash provided by (used in) operating activities    (255,382)   2,252,005 
           
Cash flows from investing activities:          
Purchases of property and equipment   (2,590,302)   (1,107,732)
Sales of property and equipment   1,005,214    348,762 
Convertible note receivable - related party   (1,126,500)   (550,000)
Investment in WRLD3D   -    (50,000)
Purchase of subsidiary shares from open market   -    (33,987)
Net cash used in investing activities    (2,711,588)   (1,392,957)
           
Cash flows from financing activities:          
Proceeds from the exercise of stock options and warrants   85,000    215,311 
Proceeds from exercise of subsidiary options    2,650    10,349 
Restricted cash   -    90,000 
Purchase of treasury stock   -    (750,714)
Dividend paid by subsidiary to non-controlling interest   (566,465)   (417,853)
Proceeds from bank loans   1,337,092    696,936 
Payments on capital lease obligations and loans - net   (298,610)   (961,901)
Net cash provided by (used in) financing activities    559,667    (1,117,872)
Effect of exchange rate changes   (2,666,960)   (1,202,147)
Net decrease in cash and cash equivalents   (5,074,263)   (1,460,971)
Cash and cash equivalents at beginning of the period   22,088,853    14,172,954 
Cash and cash equivalents at end of period  $17,014,590   $12,711,983 

 

   
 

 

NETSOL Technologies, Inc. and Subsidiaries

Schedule 4: Reconciliation to GAAP

 

   Three Months   Three Months   Nine Months   Nine Months 
   Ended   Ended   Ended   Ended 
   March 31, 2019   March 31, 2018   March 31, 2019   March 31, 2018 
                 
Net Income (loss) before preferred dividend, per GAAP  $1,267,560   $2,864,445   $5,085,778   $3,129,368 
Non-controlling interest   501,835    1,994,869    2,295,736    3,210,683 
Income taxes   275,476    261,182    777,262    486,980 
Depreciation and amortization   1,127,096    1,358,385    3,350,759    4,168,259 
Interest expense   70,447    102,522    233,685    330,268 
Interest (income)   (201,084)   (142,356)   (680,469)   (394,837)
EBITDA  $3,041,330   $6,439,047   $11,062,751   $10,930,721 
Add back:                    
Non-cash stock-based compensation   154,551    448,233-    1,024,294    1,281,763 
Adjusted EBITDA, gross  $3,195,881   $6,887,280   $12,087,045   $12,212,484 
Less non-controlling interest (a)   (959,955)   (2,540,702)   (3,600,485)   (4,804,869)
Adjusted EBITDA, net  $2,235,926   $4,346,578   $8,486,560   $7,407,615 
                     
Weighted Average number of shares outstanding                    
Basic   11,656,098    11,190,048    11,580,066    11,118,529 
Diluted   11,691,342    11,268,842    11,615,310    11,152,365 
                     
Basic adjusted EBITDA  $0.19   $0.39   $0.73   $0.67 
Diluted adjusted EBITDA  $0.19   $0.39   $0.73   $0.66 
                     
(a) The reconciliation of adjusted EBITDA of non-controlling interest to net income attributable to non-controlling interest is as follows                    
                     
Net Income attributable to non-controlling interest  $501,835   $1,994,869   $2,295,736   $3,210,683 
Income Taxes   109,957    65,798    251,321    106,221 
Depreciation and amortization   360,071    449,828    1,064,203    1,382,148 
Interest expense   22,173    31,865    75,082    105,400 
Interest (income)   (43,905)   (43,702)   (165,020)   (125,777)
EBITDA  $950,131   $2,498,658   $3,521,322   $4,678,675 
Add back:                    
Non-cash stock-based compensation   9,824    42,044    79,163    126,194 
Adjusted EBITDA of non-controlling interest  $959,955   $2,540,702   $3,600,485   $4,804,869